TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 274
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A has erred in granting partial relief of 30% on disallowance made under Section 40(a)(ia), without substantiating the basis for such proportionate allowance, especially when the assessee had failed to produce invoices, confirmations, or proof of TDS compliance in respect of the remaining 70% of the provisions made, even when specifically asked by AO?" 3. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to delete the amount of Rs. 2.29,06,061/- even when the assessee failed to establish (on specific enquiry by AO) that the assessee has deducted TDS on the payment for which expenses have been claimed in AY 2020-21.7" 4 "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A)has erred in concluding that partial relief is justified under Section 40(a)(ia), despite the assessee's non-compliance with Section 206AA, resulting in short deduction and non-deduction of TDS?" 5. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as selected for scrutiny, and statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, upon perusal of the computation of the income of the assessee, it was observed that the assessee has claimed Rs. 2,26,24,534/- and Rs. 2,81,527/- which were disallowed under section 40(a)(i) and 40(a)(ia) of the Act, respectively, in the assessment year 2019-20, on the basis that the TDS has been deducted and deposited during the year under consideration, i.e., assessment year 2020-21. Accordingly, the assessee was asked to substantiate its claim with documentary evidence such as a copy of challans of TDS paid, computation of income, ITR copy and Form 3CD report of the respective years, wherein disallowance of the amounts mentioned above was made. In response, the assessee submitted that it follows a policy of creating provisions for expenses in the books of account on a monthly basis and reversing them on the first day of the subsequent month. Accordingly, as per the policy of the assessee, the entire year-end provision as on 31.03.2019 made in the financial year 2018-19, was reversed on 01.04.2019, i.e., in the finan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ea of the assessee that the policy of making/creating provisions for expenses is consistently followed by the assessee on a monthly basis, and these provisions were reversed on the first day of the subsequent month. Accordingly, as per the assessee, in the financial year 2019-20, i.e., relevant to the year under consideration, it reversed the entire provision made in the financial year 2018-19 and suo moto offered the same to tax. Insofar as the suo moto disallowance @30% under section 40(a)(ia) and @100% under section 40(a)(i) of the Act made in the financial year 2018-19, the assessee claimed the deduction in the year under consideration on the basis that the TDS was deducted and deposited during the year under consideration. Thus, as per the assessee, since the amount claimed as deduction in the year under consideration was already suo moto disallowed by the assessee in the financial year 2018-19, any further disallowance in the year under consideration would result in double disallowance of the same amount once in the year of provision and again in the year of reversal, which would be grossly incorrect in law and on facts. 8. From the perusal of the record, we find that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....year under consideration, while making payments to the parties. Since this issue is restored to the file of the AO for consideration afresh, the assessee shall be at liberty to furnish all the details in support of its claim. We order accordingly. Needless to mention, no order shall be passed without affording reasonable and adequate opportunity of hearing to the assessee. With the above observation, the impugned order on this issue is set aside, and grounds no. 1-5 raised in the Revenue's appeal are allowed for statistical purposes. 10. Grounds no. 6 and 7 raised in Revenue's appeal are general in nature and therefore need no separate adjudication. 11. Grounds no. 8 and 9, raised in Revenue's appeal, pertain to the deduction claimed under section 80G of the Act on Corporate Social Responsibility ("CSR") expenses. 12. We have considered the submissions of both sides and perused the material available on record. During the assessment proceeding, upon perusal of the P & L account and computation of total income of the assessee, it was observed that the assessee incurred CSR expenses amounting to Rs. 23,67,243/- during the year under consideration. However, the assessee disal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the appellant has relied upon the various judicial pronouncement made by different Hon'ble ITAT. The appellant is rightly added the expenditure made on account of CSR expenditure and claimed the same u/s 80G of the Act. On insertion of Explanation 2 to section 37(1) vide Finance (No.2) Act, 2014 CSR expenses were excluded from business expenditure and it specified that donations to "Swachh Bharat Kosh and Clean Ganga Fund" were not deductible under section 80G. Nonetheless, this implied that other donations under section 80G were deductible if conditions were met. Since assessee's contributions did not fall under specified exceptions, they were entitled to section 80G deduction for their donations. Therefore the A.O. is directed to delete the addition made on account of claim made u/s 80G of the Act. Hence, this ground of appeal is Allowed." Being aggrieved, the Revenue is in appeal before us. 14. Having considered the submissions of both sides and perused the material available on record, in the present case, it is an undisputed fact that the assessee has not claimed the deduction of CSR expenditure under section 37(1) of the Act, and its claim is only restricted to sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein." 13. From the above it is clear that under Income tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, 'Income from Business and Profession" to those, who pursue corporate social responsibility projects under following sections. * Section 30 provides deduction on repairs, municipal tax and insurance premiums. * Section 31, provides deduction on repairs and insurance of plant, machinery and furniture. * Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like know-how, patents, trademarks, licenses. * Section 33 allows development rebate on machinery, plants and ships. * Section 34 states condi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....". 16. For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments( keeping in mind ineligible deduction expressly provided u/s. 80G), the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing "Total Taxable Income" cannot be denied to assessee, subject to fulfillment of necessary conditions therein. 17. We therefore do not agree with arguments advanced byLd.Sr.DR. 18. In present facts of case, Ld. AR submitted that all paymentsforming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the other entries also, but such a restriction is conspicuously absent for other entries. The irresistible conclusion that would flow from it is that it is not the legislative intention to bar the payments covered by section 80G(2) of the Act which were made pursuant to the CSR, and other than covered by section 80G(2)(iiihk) and (iiihl) of the Act. As stated above, clue can be had from the restrictions by way of section 80G (2) (iiihk) and (iiihl) of the Act. Explanation 2 to section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D of the Act and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI-A of the Act. 7. Where the deduction under section 80G of the Act is also disallowed, since CSR qualifying donations are not 'voluntary contributions', it will be a double jeopardy in the case of assessee. Assessee cannot be denied the benefit of claim under Chapter VIA of the Act, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture incurred by the assessee for the purpose of business or profession. It is observed that the said expenses pertaining to CSR has been claimed as deduction under section80G of the Act which claim was perennially rejected by the Revenue for the reason that only donations which are voluntary in nature will come under the purview of section 80G of the Act and donation towards CSR was merely a statutory obligation on companies as per section 135 of the Companies Act, 2013. It is pertinent to point out that the intention of the legislature was clear when the same was clarified by the Finance (No.2) Act, 2014 that CSR expenses will not fall under the business expenditure and also there has been an express bar specified in sub clause (iiihk) and (iiihl) of section 80G(2)(a) of the Act that any sum paid by the assessee as donation to Swatch Bharat Kosh and Clean Ganga Fund will not come under the purview of deduction under section80G of the Act subject to certain conditions. This justifies the fact that the other donations specified under section80G of the Act would be entitled to deduction provided the conditions stipulated under section80G of the Act are satisfied. In the present case....